This article was originally published in the November/December 1996 issue of Home Energy Magazine. Some formatting inconsistencies may be evident in older archive content.

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Home Energy Magazine Online November/December 1996

Constructive Restructuring

by Joel Eisenberg

To keep low-income weatherization and other energy efficiency programs alive, weatherization advocates must get involved in the utility restructuring debates.

A group meets to discuss plans for low-income weatherization in the restructured utility system in California.

The opening of the electric industry to competitive forces could determine the future of low-income energy efficiency initiatives in the United States. The changes buffeting the industry will affect funding for the ratepayer-financed programs that have supplemented government-supported weatherization in recent years. The shape of these programs, including who gets to run them, how they are targeted, what work gets done, and who gets to do it, is also at stake. Across the country, groups interested in protecting low-income programs are coming to the table to make sure their concerns are heard.

Electric utility restructuring is currently under way at the state, not the federal, level (see What Is Electricity Restructuring?). The public utility commissions of California, Massachusetts, and New York have already called for competitive retail electric markets beginning in 1998, and many other jurisdictions are likely to follow. The weatherization community's involvement in these decisions could determine how the outcome affects low-income consumers and low-income energy efficiency programs.

Risks for Low-Income Households
Electric industry restructuring could result in fewer programs, higher rates, and loss of regulatory protection for low-income consumers. In recent years, there have been four major funding sources for low-income energy efficiency programs: the Department of Energy's Weatherization Assistance Program (WAP); the Department of Health and Human Services' Low-Income Home Energy Assistance Program (LIHEAP); Oil Overcharge funds; and utility- based programs. Congress has reduced funding for WAP from $211 million in 1995 to $111 million in 1996, and has cut LIHEAP appropriations by $300 million. Meanwhile, the Oil Overcharge funds have been nearly depleted. There appears to be little prospect of a major reversal in these trends for federal funds in the immediate future.

This drop in the overall financial commitment to low-income energy efficiency means that utilities have been providing an even greater proportion of the investment than the 27% they provided in 1992. But a more competitive restructured electric industry may be reluctant to expand or even continue financing for these social benefit programs, because they can't recover the cost of the investments through assured, regulated rates. The same problem confronts low-income payment assistance and discount programs, research and development investments, and other energy efficiency programs.

Industry restructuring could also raise rates for low-income consumers. Right now about $160 billion in strandable assets are being paid for by all classes of electricity consumers in current rates. These are assets, such as aging nuclear plants, that will be too costly to be competitive in a deregulated market. As large industrial customers get lower rates from their energy suppliers, less powerful customers may be forced to assume the costs of maintaining these plants.

Small consumers, and low-income consumers in particular, may never share in the benefits of a more competitive marketplace. Since they have relatively low energy needs, high marketing costs, and high metering costs, they offer suppliers lower potential for profit than larger consumers.

Many of the protections that now ensure fair treatment for low-income households are part of the same regulatory structure that utilities and large consumers would like to eliminate. These include such time-tested measures as fair and established deposit procedures, protection from service termination under life-threatening circumstances, budget billing programs, and reasonable terms for service connection and reconnection. In a more competitive electric industry, with an emphasis on short-term prices, utilities may not maintain these traditional offerings.

Is Weatherization Doomed?
With less federal funds and disappearing utility social benefit programs, are low-income weatherization programs doomed? Not necessarily. In the past, when industries have been deregulated, policy makers have often created programs to protect low-income consumers. Ample precedent exists in the energy industry itself. The DOE Weatherization Assistance Program and LIHEAP were created in 1980, in response to skyrocketing petroleum prices and the pending decontrol of oil and gas prices. In the telecommunications industry, the Federal Communications Commission established its Lifeline program in 1985, to protect low-income consumers from the impact of telephone restructuring and the cost of new subscriber line charges.

These two examples differ from the present electric utility restructuring in the political jurisdiction where the action will take place. For telecommunications and petroleum, the changes, and remedies for low-income households, came from the federal government. For electricity, the changes are much more likely to come from state utility commissions and legislators who have direct responsibility for retail electricity markets. The creation of energy efficiency and energy payment assistance programs for low-income consumers will be the responsibility of these state authorities.

Weatherization
Community Steps In
Low-income consumers will have to be represented by state and local networks working in each jurisdiction. Some state regulators and legislators are legitimately concerned that restructuring could reduce assured, affordable access to basic electric service. This concern creates an opportunity for low-income advocates to consolidate and build support for remedial programs, including low-income weatherization.

As restructuring gathers momentum, the structure of low-income energy efficiency and assistance programs will be determined largely by who is at the table. At a time when resources are shrinking and weatherization programs are downsizing, it may be difficult to devote human resources to meetings and working groups. However, intervention by weatherization advocates is necessary to ensure the survival of low-income energy efficiency programs.

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Representatives of the weatherization network have succeeded in raising their issues in regulatory and legislative proceedings in Arizona, California, Illinois, Iowa, Minnesota, Massachusetts, New York, Pennsylvania, Ohio, Vermont, and Wisconsin.

In California, the state community action association, CalNeva, has been representing low-income consumers' interests in the ongoing proceedings on restructuring. Working groups set up by the California Public Utilities Commission to design a new industry structure give interested parties a chance to participate in the restructuring process. The Low-Income Working Group has representatives from the state's energy vendors, public utility commission staff, and major consumer groups, as well as the community action network. CalNeva (represented by Katy Olds) has been a driving force in the working group, and has focused on consolidating support behind continued funding for the state's extensive low-income energy efficiency and discount rate programs.

In Massachusetts, the Community Action Association (CAA) and the National Consumer Law Center (NCLC) have been trying to expand support not only for the existing rate discounts, but also for expanded energy efficiency efforts in the soon-to-be-restructured utility industry. Elliott Jacobson of CAA and Nancy Brockway of NCLC first became active in a large group of interested parties called the Electric Industry Restructuring Roundtable, which recommended a set of principles to the Massachusetts Department of Public Utilities (DPU). The principles adopted by the DPU consequently recognized the needs and interests of low-income consumers.

When the DPU issued its restructuring order, it required the state's major utilities to file restructuring plans in October of 1996. Jacobson and Brockway are working with the utilities to help build low-income energy efficiency programs, rate reductions, and consumer rights into the individual utility restructuring plans. The energy efficiency programs they propose would be operated by the existing weatherization network.

The nature of the weatherization community's involvement in the restructuring process varies from state to state. California and Massachusetts have taken the lead in electric industry reorganization, and the opportunity for low-income representation emerged very quickly. In some states, such as Illinois, Arizona, and New York, the restructuring process is not as clearly defined. Yet advocates for low-income consumers have been at the table as the debates and negotiations occur. In other states the issue of restructuring has been slower to develop and the forums for participation by the weatherization network have yet to emerge.

Support for the Weatherization Network
Several groups have formed to help people who work in weatherization get involved. The National Association for State Community Services Programs, made up of state WAP program managers, has formed an ad hoc committee to encourage information sharing and mutual support for weatherization programs active in the restructuring debate. The Low-Income Energy Advocates Peer Exchange, coordinated by the Energy Project in Bellingham, Washington, is open to any professional concerned with utility and low-income issues. The Peer Exchange has been meeting periodically to develop principles for the restructuring debate, to evaluate the changing utility environment, and to exchange information and ideas.

Finally, the Weatherization Assistance Project at Oak Ridge National Laboratory (ORNL) has research and background materials for weatherization professionals and others who are participating in restructuring activities at the state level. ORNL staff can help members of the network to evaluate the status of the restructuring process in their own states, and to determine where the opportunities for their involvement may lie.

Joel Eisenberg is senior analyst for public policy at Oak Ridge National Laboratory.

Power for the People: A Public Interest Blueprint for Electricity Restructuring. Published by Citizen Action, Environmental Action, Public Citizen, and the U.S. Public Interest Research Group. To order, call (202)588-1000.

Electricity restructuring is similar to the reshaping of the telecommunications, airlines, and trucking industries over the past two decades. Complete retail deregulation, known as retail wheeling, is not inevitable, but a generally more competitive, less regulated electricity business is certainly on its way. Recent rulings by the Federal Energy Regulatory Commission (FERC) have already set out the road map to a more competitive wholesale power generation market. More than 30 state regulatory commissions and legislatures are now exploring the potential for and limits of competitive markets.

Technological, economic, public policy, and market forces are driving these profound changes in the electricity business.

Technological and Economic Change

The era of ever larger, ever more cost-effective power plants that shaped the electric generating business for four decades is over. Where once power stations of 1,000 megawatts (MW) and more were considered the desirable way to meet growing power requirements, now combustion turbines that generate from 25 to 250 MW are often the units of choice. These natural-gas-fired plants can be installed at one-third to one-half the capital cost per kW of conventional steam generators, and they provide electricity at lower energy cost than the U.S. retail average. Somewhat larger combined cycle gas units are also considerably less expensive per kilowatt-hour (kWh) of electricity generated than larger coal-fired power plants, and they are faster to install. Bigger is no longer more cost-effective.

Because economies of scale no longer apply to the same degree, it is possible to create a cost-effective mix of generation from a wide variety of smaller power resources rather than from a single massive plant. This eliminates the need for a single generating monopoly capable of mobilizing huge amounts of capital for individual projects. As the mainframe computer has given way to individual PCs, electric generation is increasingly becoming cost-effective in smaller units of service.

Public Policy

Federal policy has been moving in the direction of less regulation and more competition in many industries. The 1992 Energy Policy Act (EPAct) embraced competition in wholesale power markets as the cornerstone of federal electricity policy. FERC has been promoting open access to transmission lines that will allow wholesale buyers of electricity to buy their power not just from their monopoly supplier, but from any supplier with access to the transmission grid.

Market Forces

The price of electricity that consumers in many parts of the United States now pay is more than the cost to generate and distribute electricity from a newly constructed power plant. There are also substantial differences in power costs among various regions, states, and even individual utilities within states. For example, the average cost of electricity to consumers in New England in May of 1995 was 10.1¢/kWh, and in the Middle Atlantic states it was 9.2¢/kWh, whereas the national average was 6.89¢/kWh.

These cost differences have created incentives for some industrial consumers to try to get independent access to the transmission lines and bypass the high-cost power of their monopoly supplier. This would create not only competitive wholesale electric markets, but competitive retail markets as well. While there is general agreement that competition is coming and is desirable at the generation and wholesale level, there is no such consensus regarding retail competition.

Will all consumers have access to competitive power supplies, or only large consumers? What will happen to renewable energy and demand-side management programs? If retail competition comes to pass will current consumer protections, including low-income programs, stay in place, or will they be left to the marketplace? Will the electric industry go the way of the telephone business, with confusing ads and intense competition? These are the questions that will be answered by the debate over electric industry restructuring.

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